CAE Inc (CAE.TO)

$3.9 billion market cap with $280 million in cash. Pays a 2% dividend. Has a 3% free cash flow yield and 13% ROE. Trading at 9.5X EBITDA. Has a year over year EBITDA growth of 13%. A sleep at night stock. Earnings growth is expected to be 13% this year and next. Just announced $300 million in new contracts on the flight simulation side.

(Top Pick Sep 26/14, Up 12.12%) He is disappointed but would still hold it. He wanted a decisive breakout but it did not. Until it is extremely popular he will hold on to it.

(A Top Pick July 28/14. Up 6.7%.) This was a Top Pick again for him recently. They recently announced they were selling their mining business, a very small part of their business. He thinks they are going to stick with the avionics and health care side of the business for the time being. Has always been an extremely well-managed company and is very well positioned in the aeronautical industry. As economies globally, they’re going to be more airlines and more pilots needing training. They will also benefit from any increase in military spending.

(A Top Pick May 22/15. Down 2.3%.) Aerospace is one of his favourite themes. This company has been trying to break out of a series of highs of a little over $15. Every time it tries to break out, it gets smacked down again. A very frustrating stock. Still a Hold if you own.

(Market Call Minute.) Thinks there is a lot of growth ahead because there are so many retiring airline pilots. If it were a little bit cheaper, he would probably think of buying it.

It has always been a little too highly priced for his blood, but is a technological leader. They are taking on training programs for various airlines. There is an estimated 60,000 shortfall for pilots in the world that need to be trained. If it pulled back he would take a serious look at it.

He has not bought it because it is pretty much takeover proof. They have been riding the wave of the new generations of airlines. That cycle is going to come to an end at some point. He does not feel it is a great investment.

(Market Call Minute.) A simulation company and we are seeing improvements in defence spending and commercial aerospace.

They provide modelling simulation and training services for both civil and defence aviation. The military side, which has been quiet for some time, just recently seems to have increased a little. Have just gone through a period where they invested a lot of money in pilot training facilities. As a result he expects CapX is going to be quite a bit lower going forward, which will make utilization rates look a lot better, particularly since there will be a lot of pilots retiring over the next couple of years. Yield of 1.87%.

He likes it and thinks it is a good buy here. It has done okay. He bought it in the fall and was patient. They are a Canadian manufacturer that has leadership in their space and benefit from the rising US dollar. You should see 8 to 10% earnings growth over the next 3 to 5 years.

(A Top Pick Nov 11/14. Up 6.47%.) The stock is fighting to get above its old highs. If it can clear $15.50-$15.70, we have blue sky and it is on its way. This is aerospace, so you key off Honeywell (HON-N) which made a 52 week high last week.

A global leader in flight simulation training, both in civil aviation and defence. Also, branching out into security and healthcare. Reporting on May 26 and expecting $0.24. Has a 15.3% forecasted ROE. Large debt of $1.2 billion, but the servicing of it appears pretty good. Also, has $250 million in cash. Earnings are forecasted to grow 14% this year and 16% next. This gives a PE to growth of .96.

(A Top Pick Feb 27/15. Down 2.41%.) A leading player in the simulation space. With the number of active fleets growing, we need more pilots and they need to be certified, along with the existing pilots that need to be re-certified. Diversified with 60% in civil, 20% in defence and 10% in health care.

(Top Pick Mar 18/14, Up 0.89%) One of these times he will be right. The long term breakout is Feb/15 and some day it will break out for good. It repaired a lot of the underperformance so he is positive on the stock.

Aerospace sector looks attractive. It has room to grow. The driver is Asian airlines. He lightened up on it because it seems to be in a flattish portion of its growth curve. It is attractive overall but it is just a hold right now.